<PAGE> 1
------------------------------------------------------------------------------
------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------
Form 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1998
--------------------------------------
RITCHIE BROS. AUCTIONEERS INCORPORATED
9200 Bridgeport Road
Richmond, BC, Canada
V6X 1S1
(604) 273 7564
(Address of principal executive offices)
--------------------------------------
[indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F]
Form 20-F __ Form 40-F X
[indicate by check mark whether the registrant by furnishing information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of 1934]
Yes __ No X
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<PAGE> 2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements do not include
all information and footnotes required by Canadian or United States generally
accepted accounting principles. However, in the opinion of management, all
adjustments (which consist only of normal recurring adjustments) necessary for a
fair presentation of the results of operations for the relevant periods have
been made. Results for the interim periods are not necessarily indicative of the
results to be expected for the year or any other period. These financial
statements should be read in conjunction with the summary of accounting policies
and the notes to the consolidated financial statements for the periods ended
April 30, 1997 and December 31, 1997 included in the Company's Rule 424(b)
Prospectus dated March 9, 1998 filed with the United States Securities and
Exchange Commission. Effective December 31, 1997, the Company changed its fiscal
year end from April 30 to December 31.
2
<PAGE> 3
RITCHIE BROS. AUCTIONEERS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 89,681 $27,149
Accounts receivable....................................... 16,123 6,744
Inventory................................................. 9,139 7,081
Advances against auction contracts........................ 10,480 1,261
Prepaid expenses and deposits............................. 1,329 1,218
-------- -------
126,752 43,453
Fixed assets (note 2)....................................... 50,413 27,007
Deferred income taxes (note 3).............................. 1,635 --
-------- -------
$178,800 $70,460
======== =======
LIABILITIES AND EQUITY
Current liabilities:
Auction proceeds payable.................................. $ 62,232 $17,728
Accounts payable and accrued liabilities.................. 14,947 17,131
Current bank loans........................................ 4,025 730
Income taxes payable...................................... 474 4,542
-------- -------
81,678 40,131
Bank term loans............................................. 4,008 4,623
-------- -------
85,686 44,754
SHAREHOLDERS' EQUITY
Share capital (note 4).................................... 64,816 10,866
Retained earnings......................................... 30,811 16,958
Foreign currency translation adjustment................... (2,513) (2,118)
-------- -------
93,114 25,706
-------- -------
$178,800 $70,460
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
RITCHIE BROS. AUCTIONEERS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS EXCEPT PER SHARE AMOUNTS)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Auction revenues............................ $ 13,869 $ 15,629 $ 64,286 $ 59,864
Direct expenses............................. 2,566 3,481 11,029 11,471
---------- ---------- ---------- ----------
11,303 12,148 53,257 48,393
Expenses:
Depreciation.............................. 713 678 1,969 1,838
General and administrative................ 9,382 9,814 30,257 25,439
Employee equity participation............. -- 7,733 -- 7,733
---------- ---------- ---------- ----------
10,095 18,225 32,226 35,010
---------- ---------- ---------- ----------
Income (loss) from operations............... 1,208 (6,077) 21,031 13,383
Other income (expenses):
Interest expense.......................... (117) (659) (1,288) (1,329)
Other..................................... 2,074 279 2,651 514
---------- ---------- ---------- ----------
1,957 (380) 1,363 (815)
---------- ---------- ---------- ----------
Income (loss) before income taxes........... 3,165 (6,457) 22,394 12,568
Income taxes -- current (note 5)............ 621 3,543 7,981 4,853
Income taxes -- deferred.................... 540 -- 540 --
---------- ---------- ---------- ----------
Net income (loss)........................... $ 2,004 $ (10,000) $ 13,873 $ 7,715
========== ========== ========== ==========
Net income per share (note 6)............... $ 0.12 $ (0.77) $ 0.88 $ 0.60
========== ========== ========== ==========
Net income per share -- diluted (note 6).... $ 0.12 $ (0.77) $ 0.87 $ 0.60
========== ========== ========== ==========
Weighted average number of shares
outstanding............................... 16,548,666 12,971,602 15,705,754 12,801,916
========== ========== ========== ==========
Diluted weighted average number of shares
outstanding............................... 16,756,391 13,059,787 15,900,758 12,831,634
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
RITCHIE BROS. AUCTIONEERS INCORPORATED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
(unaudited)
<TABLE>
<CAPTION>
FOREIGN
CURRENCY TOTAL
SHARE RETAINED TRANSLATION SHAREHOLDERS'
CAPITAL EARNINGS ADJUSTMENT EQUITY
------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997.................... $10,866 $16,958 $(2,118) $25,706
Common shares issued........................ 51,911 -- -- 51,911
Net income.................................. -- 3,377 -- 3,377
Foreign currency translation adjustment..... -- -- (53) (53)
------- ------- ------- -------
Balance, March 31, 1998....................... 62,777 20,335 (2,171) 80,941
Net income.................................. -- 8,492 -- 8,492
Tax recovery on amortization of underwriting
costs.................................... 2,175 -- -- 2,175
Additional costs of issuance of common
shares................................... (136) -- -- (136)
Additional costs of reorganization.......... -- (20) -- (20)
Foreign currency translation adjustment..... -- -- (264) (264)
------- ------- ------- -------
Balance, June 30, 1998........................ 64,816 28,807 (2,435) 91,188
Net income.................................. -- 2,004 -- 2,004
Foreign currency translation adjustment..... -- -- (78) (78)
------- ------- ------- -------
Balance, September 30, 1998................... $64,816 $30,811 $(2,513) $93,114
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
RITCHIE BROS. AUCTIONEERS INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998
-----------------
<S> <C>
Cash provided by (used in)
Operations:
Net income................................................ $ 13,873
Items not involving the use of cash
Depreciation........................................... 1,969
Deferred income taxes.................................. 540
Changes in non-cash working capital:
Accounts receivable.................................... (9,379)
Inventory.............................................. (2,058)
Advances against auction contracts..................... (9,219)
Prepaid expenses and deposits.......................... (111)
Auction proceeds payable............................... 44,504
Accounts payable and accrued liabilities............... (2,184)
Income taxes payable................................... (4,068)
Foreign currency translation adjustment................... (395)
--------
33,472
Financing:
Issuance of share capital, net of issue costs............. 51,775
Additional costs of reorganization........................ (20)
Bank loans................................................ 2,680
--------
54,435
Investments:
Fixed asset additions, net................................ (25,375)
--------
Increase in cash and cash equivalents....................... 62,532
Cash and cash equivalents, beginning of period.............. 27,149
--------
Cash and cash equivalents, end of period.................... $ 89,681
========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
SEPTEMBER 30, 1998
(Information as at September 30, 1998 and for the periods
ended September 30, 1998 and 1997 is unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) BASIS OF PRESENTATION:
These unaudited consolidated financial statements present the financial
position, results of operations and changes in shareholders' equity and cash
flows of Ritchie Bros. Auctioneers Incorporated (the "Company") and its
predecessor businesses. These predecessor businesses comprised the Ritchie Bros.
Auctioneers group of companies and partnerships. A reorganization of the Company
and its predecessor businesses (the "Reorganization") was completed in December
1997 and is described more fully in the consolidated financial statements and
notes thereto included in the Company's Rule 424(b) Prospectus dated March 9,
1998 filed with the United States Securities and Exchange Commission.
These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles for interim financial
information. Except as disclosed in note 7, these consolidated financial
statements comply, in all material respects, with generally accepted accounting
principles in the United States.
2. FIXED ASSETS
Fixed assets at September 30, 1998 were as follows:
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------- ------------ --------
<S> <C> <C> <C>
Land and improvements..................................... $32,758 $ 874 $31,883
Buildings................................................. 14,698 2,905 11,793
Automotive equipment...................................... 5,073 1,547 3,526
Computer equipment........................................ 1,642 646 996
Yard equipment............................................ 2,296 1,042 1,254
Office equipment.......................................... 1,781 980 801
Leasehold improvements.................................... 200 41 160
------- ------ -------
$58,448 $8,035 $50,413
======= ====== =======
</TABLE>
Fixed assets at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------- ------------ --------
<S> <C> <C> <C>
Land and improvements..................................... $12,830 $ 535 $12,295
Buildings................................................. 11,490 2,726 8,764
Automotive equipment...................................... 3,974 1,002 2,972
Computer equipment........................................ 1,384 433 951
Yard equipment............................................ 2,320 1,082 1,238
Office equipment.......................................... 1,454 874 580
Leasehold improvements.................................... 225 18 207
------- ------ -------
$33,677 $6,670 $27,007
======= ====== =======
</TABLE>
7
<PAGE> 8
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
SEPTEMBER 30, 1998
(Information as at September 30, 1998 and for the periods
ended September 30, 1998 and 1997 is unaudited)
3. DEFERRED INCOME TAXES
Deferred income taxes recoverable of $1,635,000 have been recorded to give
net effect to (i) future reductions in income taxes payable by the Company
resulting from tax deductible financing costs incurred in the course of the
Company's initial public offering completed in March 1998, and (ii) future
income taxes payable by the Company relating to a gain on sale of land during
September 1998.
4. SHARE CAPITAL:
SHARES ISSUED:
In March 1998, the Company issued 3,335,000 common shares in connection
with its initial public offering. Net proceeds raised from the offering, after
deducting underwriting commissions and other direct costs, were $51.8 million.
OPTIONS:
During the nine months ended September 30, 1998, options to purchase 36,000
common shares were granted to an employee of the Company and options to purchase
25,333 common shares expired when certain other individuals ceased to be
employees of the Company.
5. INCOME TAXES:
For the three months and nine months ended September 30, 1997, not all
income earned by the Group was subject to tax as, during the period prior to the
Reorganization, many of the Company's predecessor entities were partnerships and
not subject to corporate income tax.
6. NET INCOME PER SHARE:
Net income per share has been calculated based on the weighted average
number of shares outstanding after giving retroactive effect to the 12,715,667
common shares issued on the Reorganization.
7. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
The consolidated financial statements are prepared in accordance with
Canadian generally accepted accounting principles for interim financial
information which differ, in certain respects, from accounting practices
generally accepted in the United States and from requirements promulgated by the
United States Securities and Exchange Commission.
8
<PAGE> 9
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
SEPTEMBER 30, 1998
(Information as at September 30, 1998 and for the periods
ended September 30, 1998 and 1997 is unaudited)
Material differences to the consolidated financial statements and related
notes of the Company are as follows:
(a) CONSOLIDATED STATEMENT OF CASH FLOWS:
United States accounting principles require the following supplementary
information be presented to a statement of cash flows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1998
-------------
<S> <C>
Interest paid............................................... $ 1,288
Income taxes paid........................................... $12,951
</TABLE>
(b) NET INCOME PER SHARE:
Under United States generally accepted accounting principles, basic and
diluted net income per share are not materially different than the corresponding
basic and diluted net income per share computed under Canadian generally
accepted accounting principles.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of Ritchie Bros.
Auctioneers Incorporated ("Ritchie Bros." or the "Company") for the three-month
and nine-month periods ended September 30, 1998 compared to the three-month and
nine-month periods ended September 30, 1997. This discussion should be read in
conjunction with the consolidated financial statements and notes to the
consolidated financial statements thereto included in the Company's Rule 424(b)
Prospectus dated March 9, 1998 filed with the United States Securities and
Exchange Commission. Effective December 31, 1997, the Company changed its fiscal
year end from April 30 to December 31. Data for the three-month and nine-month
periods ended September 30, 1997 is based on management estimates.
Ritchie Bros. is the world's leading auctioneer of industrial equipment,
operating through over 50 locations, including 13 permanent auction sites and 8
regional auction units, in 13 countries in North America, Europe, Asia,
Australia and the Middle East. The Company sells, through unreserved public
auctions, a broad range of used equipment, including equipment utilized in the
construction, transportation, mining, forestry, petroleum and agricultural
industries.
Gross auction sales represent the aggregate selling prices of all items
sold at Ritchie Bros. auctions during the periods indicated. Gross auction sales
are key to understanding the financial results of the Company, since the amount
of auction revenues and to a lesser extent, certain expenses, are dependent on
it. Auction revenues include commissions earned as agent for consignors through
both straight commission and gross guarantee contracts, plus the net profit on
the sale of equipment purchased and sold by the Company as principal. Under a
gross guarantee contract, the consignor is guaranteed a minimum amount of
proceeds on the sale of its equipment. When the Company guarantees gross
proceeds, it earns a commission on the guaranteed amount and typically
participates in a negotiated percentage of proceeds, if any, in excess of the
guaranteed amount. If auction proceeds are less than the guaranteed amount, the
Company's commission would be reduced, or, if sufficiently lower, the Company
would incur a loss. Auction revenues are reduced by the amount of any losses on
gross guarantee consignments and sales by the Company as principal. Auction
revenues also include interest income earned that is incidental to the auction
business.
The Company's gross auction sales and auction revenues are affected by the
seasonal nature of the auction business. Gross auction sales and auction
revenues tend to increase during the second and fourth calendar quarters during
which the Company generally conducts more auctions than in the first and third
calendar quarters. The Company's gross auction sales and auction revenues are
also affected on a period-to-period basis by the timing of major auctions. In
newer markets where the Company is developing operations, the number and size of
auctions and, as a result, the level of gross auction sales and auction
revenues, is likely to vary more dramatically from period-to-period than in the
Company's established markets where the number, size and frequency of the
Company's auctions are more consistent. Finally, economies of scale are achieved
as the Company's operations in a region mature from conducting intermittent
auctions, establishing a regional auction unit, and ultimately to developing a
permanent auction site. Economies of scale are also achieved when the size of
the Company's auctions increases.
The Company is aware of potential restrictions that may affect the ability
of equipment owners to transport certain equipment between some jurisdictions.
Management believes that these potential restrictions have not had a significant
impact on the Company's business, financial condition or results of operations
to date. However, the extent of any future impact on the Company's business,
financial condition or results of operations from these potential restrictions
cannot be predicted at this time.
Income taxes reported in periods prior to the completion of the
reorganization (as described in the Company's Rule 424(b) Prospectus dated March
9, 1998, the "Reorganization") in December 1997 are not indicative of taxes that
would normally be incurred on reported income. Prior to the Reorganization, the
majority of Ritchie Bros.' business operations was carried on by predecessor
entities to the Company that were
10
<PAGE> 11
partnerships. Consequently, most of the income of the predecessor partnerships
was included for income tax purposes in the income of the partner entities, many
of which were not predecessor entities to the Company. As a result of the
Reorganization, the Company is subject to income taxation in all relevant
jurisdictions.
Prior to the Reorganization the Company's general and administrative
expense fluctuated significantly from period to period, primarily as a result of
the amount and timing of profit distributions paid as bonuses to certain of the
beneficial owners of the Company's predecessor entities. During this period,
certain other beneficial owners were remunerated through profit distributions
that did not result in charges against the Company's income. The differences in
timing, magnitude and characterization of remuneration will affect the
quarter-to-quarter comparability of general and administrative expense as
between the year ended December 31, 1997 and the year ending December 31, 1998,
with some quarters reflecting increased expenses, and others reflecting
decreased expenses.
Although the Company cannot accurately anticipate the future effect of
inflation, inflation historically has not had a material effect on the Company's
operations.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Auction Revenues
Auction revenues of $64.3 million for the nine months ended September 30,
1998 increased by $4.4 million, or 7.39%, from the comparable period in 1997 due
to increased gross auction sales, partially offset by a lower average percentage
of auction revenues earned by the Company on gross auction sales. Gross auction
sales of $750.5 million for the nine months ended September 30, 1998 increased
by $110.4 million, or 17.25%, from the comparable period in the prior year,
primarily as a result of increased gross auction sales in the United States and
Europe. Results for the 1998 period included significant gross auction sales for
certain auctions held by the Company in Rotterdam, the Netherlands, Fort Worth,
Texas, and Dubai, the United Arab Emirates. Auction revenues as a percentage of
gross auction sales have averaged 8.80% on a long-term basis. In the 1998
period, the average commission rate of 8.57% was lower than the long-term
average and lower than the unusually high 9.35% rate in the comparable 1997
period. The Company's expectations with respect to the long-term average auction
revenue rate remain unchanged.
Direct Expenses
Direct expenses are expenses that are incurred as a direct result of an
auction sale being held. Direct expenses include the costs of hiring personnel
to assist in conducting the auction, lease expenses for temporary auction sites,
travel costs for full-time employees to attend and work at the auction site,
security hired to safeguard equipment while at the auction site, and advertising
costs specifically related to the auction. Direct expenses decreased by $0.4
million for the nine months ended September 30, 1998 compared to the comparable
period in the prior year. As a percentage of gross auction sales, direct
expenses were 1.47% for the nine-month period ending September 30, 1998, lower
than the 1.79% experienced during the comparable period in 1997. This decrease
was primarily a result of fewer but larger auctions being held in the 1998
period as compared to the 1997 period and the related expense efficiencies
arising from conducting large auctions. As a percentage of gross auction sales,
direct expenses incurred in both periods were lower than the Company's long-term
average of 1.90%. This difference is a result of relatively more large auctions
being held by the Company during both the 1998 and 1997 periods than in other
prior periods. The Company anticipates that it will continue to hold these large
auctions and that direct expenses as a percentage of gross auction sales will,
in future periods, be lower than the average that the Company has experienced
over the last several years.
Depreciation Expense
Depreciation is calculated on capital assets employed in the Company's
business, including building and site improvements, automobiles, yard equipment,
and computers. In the nine-month period ending September 30, 1998, depreciation
increased marginally from the comparable 1997 period, due to an increase in
11
<PAGE> 12
depreciable fixed assets. Management anticipates that depreciation expense will
increase as existing auction sites are improved and additional permanent auction
sites are acquired and developed.
General and Administrative Expense
General and administrative expense ("G&A") includes employee expenses, such
as salaries, wages, performance bonuses and benefits, non-auction related
travel, institutional advertising, insurance, general office, and computer
expenses. For the nine months ended September 30, 1998, the Company incurred G&A
of $30.3 million. Management does not consider G&A of $25.4 million in the 1997
period to be meaningful as a comparable number since the expenses incurred in
the 1997 period reflect results prior to the Reorganization (as outlined in the
Company's Prospectus dated March 9, 1998) and, as a result, certain components
are not comparable on a period to period basis with the expenses incurred in the
1998 period. See "-- Overview." Management anticipates that G&A will increase in
the future due to an increased level of administrative infrastructure to support
expansion of the Company's operations.
EMPLOYEE EQUITY PARTICIPATION EXPENSE
Employee equity participation expense of $7.7 million incurred in the
nine-month period ended September 30, 1997 related to the issuance of shares and
options to employees of the Company on a discounted basis pursuant to the
Employee Equity Participation Program described in the Company's Prospectus
dated March 9, 1998. Shares and options were also issued to employees of the
Company in the final quarter of 1997 under the same program. In 1998, no such
discounted shares or options have been issued and management does not anticipate
further issuances of shares or grants of options under the Employee Equity
Participation Program.
Income from Operations
Income from operations was $21.0 million for the nine months ended
September 30, 1998. Management does not consider the 1997 results to be
meaningful as a comparable number because certain components of G&A are not
comparable on a period to period basis, and because of the effect of the
employee equity participation expense in the 1997 period.
Interest Expense
Interest expense includes interest and bank charges paid on term bank debt.
Interest expense of $1.3 million for the nine months ended September 30, 1998
was unchanged from the comparable period in 1997. Management plans to partially
finance the acquisition of additional permanent auction sites by incurring debt,
which should result in an increase in interest expense in the future.
Other Income
Other income arises from equipment appraisals performed by the Company, and
other miscellaneous sources. Other income for the nine months ended September
30, 1998 of $2.7 million increased by $2.1 million from the comparable period in
1997 due primarily to $1.8 million of non-recurring income ($1.2 million after
giving effect to income tax) during the 1998 period. This non-recurring income
was generated primarily as a result of a gain on the disposal of a permanent
auction site that has been replaced with a new facility.
Income Taxes
Income taxes of $8.5 million for the nine months ended September 30, 1998
have been computed based on rates of tax that apply in each of the tax
jurisdictions in which the Company operates. The effective rate of tax on net
income for the 1998 period of 38.1% is marginally higher than the rate the
Company would normally expect for the full 1998 year. Income taxes for the nine
months ended September 30, 1997 are not meaningful as a comparable number
because of the non-comparability of net income before tax and, since
12
<PAGE> 13
during the 1997 period prior to the Reorganization, many of the predecessor
entities to the Company were partnerships not subject to corporate income
taxation. See "-- Overview."
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Auction Revenues
Auction revenues of $13.9 million for the three months ended September 30,
1998 decreased by $1.8 million, or 11.26%, from the comparable period in 1997
due to a lower average percentage of auction revenues earned on gross auction
sales. Gross auction sales of $183.6 million for the three months ended
September 30, 1998 increased by $20.2 million, or 12.34%, from the comparable
period in the prior year, primarily as a result of increased gross auction sales
in the United States. Results for the 1998 period included a record-high gross
auction sale for the Company's auction site in Olympia, Washington. The auction
revenue rate for the three-month period in 1998 was 7.55%, below the Company's
long-term average commission rate of 8.80% and below the unusually high rate in
the comparable 1997 period of 9.56%.
Direct Expenses
Direct expenses decreased by $0.9 million for the three months ended
September 30, 1998 compared to the comparable period in the prior year. As a
percentage of gross auction sales, direct expenses were 1.40% for the
three-month period ending September 30, 1998, lower than the 2.13 experienced
during the 1997 period and lower than the Company's longer-term average rate of
1.9%. This decrease was primarily a result of fewer but larger auctions being
held in the 1998 period as compared to the 1997 period, as certain expense
efficiencies are gained when the Company conducts large auctions.
Depreciation Expense
In the three-month period ending September 30, 1998, depreciation of $0.7
million was unchanged from the comparable 1997 period. Management anticipates
that depreciation expense will increase as existing auction sites are improved
and additional permanent auction sites are acquired and developed as part of the
Company's growth strategy.
General and Administrative Expense
For the three months ended September 30, 1998, the Company incurred G&A of
$9.4 million. Management does not consider G&A of $9.8 million in the
corresponding 1997 period to be meaningful as a comparable number since the
expenses incurred in the 1997 period reflect results prior to the Reorganization
(as outlined in the Company's Prospectus dated March 9, 1998) and, as a result,
certain components are not comparable on a period to period basis with the
expenses incurred in the 1998 period. See "-- Overview." Management anticipates
that G&A will increase in the future due to an increased level of administrative
infrastructure to support expansion of the Company's operations.
Employee Equity Participation Expense
Employee equity participation expense of $7.7 million incurred in the
three-month period ended September 30, 1997 related to the issuance of shares
and options to employees of the Company on a discounted basis pursuant to the
Employee Equity Participation Program described in the Company's Prospectus
dated March 9, 1998. Shares and options were also issued to employees of the
Company in the final quarter of 1997 under the same program. In 1998, no such
discounted shares or options have been issued and management does not anticipate
further issuances of shares or grants of options under the Employee Equity
Participation Program.
Income from Operations
Income from operations was $1.2 million for the three months ended
September 30, 1998. Management does not consider the 1997 results to be
meaningful as a comparable number because certain components of
13
<PAGE> 14
G&A are not comparable on a period to period basis, and because of the effect of
the employee equity participation expense in the 1997 period.
Interest Expense
Interest expense of $0.1 million for the three months ended September 30,
1998 decreased by $0.5 million from the comparable period in 1997 due to lower
bank operating loans during the period. Management plans to partially finance
the acquisition of additional permanent auction sites by incurring debt, which
should result in an increase in interest expense in the future.
Other Income
Other income for the three months ended September 30, 1998 of $2.1 million
increased from $0.3 million in the comparable period in 1997 due to $1.8 million
of non-recurring income ($1.2 million after giving effect to income tax) during
the 1998 period. This non-recurring income was generated primarily as a result
of a gain on the disposal of a permanent auction site that has been replaced
with a new facility.
Income Taxes
Income taxes of $1.2 million for the three months ended September 30, 1998
have been computed based on rates of tax that apply in each of the tax
jurisdictions in which the Company operates. The effective rate of tax on net
income for the 1998 period of 36.7% is marginally lower than the rate the
Company would normally expect for the full 1998 year. Income taxes for the three
months ended September 30, 1997 are not meaningful as a comparable number
because of the non-comparability of net income before tax and, since during the
1997 period prior to the Reorganization, many of the predecessor entities to the
Company were partnerships not subject to corporate income taxation. See "--
Overview."
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash can fluctuate significantly from period to period,
largely due to differences in timing of receipt of gross sale proceeds from
buyers and the payment of net amounts due to consignors. If auctions are
conducted near a period end, the Company may hold cash in respect of those
auctions that will not be paid to consignors until after the period end.
Accordingly, Management believes a more meaningful measure of the Company's
liquidity is working capital, including cash.
At September 30, 1998 and December 31, 1997, working capital was $45.1
million and $3.3 million respectively. The increase in working capital of $41.8
million resulted primarily from the receipt of proceeds from the Company's
initial public offering in March 1998 of approximately $51.8 million, and from
net income earned during the nine months ended September 30, 1998. This increase
was partially offset by capital expenditures incurred by the Company during the
period.
Net capital expenditures by the Company during the nine-month period ending
September 30, 1998 were $25.4 million as compared to $3.2 million for the eight
months ended December 31, 1997. In the 1998 period, the Company acquired land
for use as permanent auction sites and incurred site development costs in the
United States, Canada, Australia and Europe.
The Company is continuing with its plan to add additional permanent auction
sites around the world and is presently in various stages of commitments to
acquire land for development in the United States and Canada.
The Company has substantially completed negotiations of credit facilities
with financial institutions in the United States, Canada, Europe, and Australia.
The Company presently has access to credit lines for operations exceeding $95.0
million and to credit lines for funding property acquisitions exceeding $35.0
million. At September 30, 1998, bank debt relating to operations totaled $0.2
million and bank debt related to property acquisitions totaled $7.8 million.
14
<PAGE> 15
YEAR 2000 COMPLIANCE
The Company relies on computer systems and software to operate its
business, including applications used to control information about bidders and
consignors and to operate certain of its marketing, finance and administrative
functions. The Company initiated its "Year 2000" compliance efforts in 1997.
Management believes that only minor modifications remain to be completed to make
its systems Year 2000 compliant and that related costs incurred to date have
not, and estimated future costs will not, have a material impact on the
Company's business, financial condition, or results of operations.
The most reasonably likely worst case Year 2000 scenario would involve the
failure of one or more of the Company's key suppliers to become Year 2000
compliant. In such a scenario, the Company's ability to adequately advertise its
auctions and account for receipts and payments as efficiently as it does at
present could be negatively affected.
The Company is presently developing contingency plans in the event of the
Company's or its key suppliers' failure to achieve full Year 2000 compliance and
management anticipates these will be completed prior to June, 1999. The plan
includes identifying alternate organizations that may act as replacements for
those with which the Company presently conducts business and which may not
achieve full year 2000 compliance, including one or more of its lenders,
marketing service suppliers, or external software providers. The Plan also
includes development of internal back-up systems and identification of available
replacement resources to restore operations to present levels in the event of
Year 2000 non-compliance. Failure by the Company or any of its key suppliers to
achieve full Year 2000 compliance in a timely manner or consistent with its
current cost estimates, or to rectify deficiencies through any contingency
plans, could have a material adverse effect on the Company's business, financial
condition and results of operations.
FORWARD-LOOKING STATEMENTS
Certain statements contained in the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" section of this Report on Form
6-K are forward-looking statements (as defined in Section 21E of the Securities
Exchange Act of 1934, as amended) that involve risks and uncertainties
including, in particular, statements relating to auction revenue rates, direct
expense rates, G&A increases, income tax rates, the anticipated improvement,
acquisition and development of permanent auction sites, and financing available
to the Company. The following important factors, among others, could affect the
Company's actual results and could cause such results to differ materially from
those expressed in the Company's forward-looking statements: the many factors
that impact on the supply of and demand for used equipment; fluctuations in the
market values of used equipment; periodic and seasonal variations in operating
results or financial conditions; potential delays in construction or development
of auction sites; actions of competitors; adverse changes in economic
conditions; restrictions affecting the ability of equipment owners to transport
equipment between jurisdictions; and other risks and uncertainties as detailed
in the Company's Rule 424(b) Prospectus dated March 9, 1998. Forward-looking
statements should be considered in light of these factors.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
<TABLE>
<CAPTION>
NUMBER
- ------ DESCRIPTION
<C> <S>
*3.1 Articles of Amalgamation, as amended
*3.2 By-laws
*4.1 Form of common share certificate
4.2 Description of capital shares contained in the Articles of
Amalgamation (see Exhibit 3.1)
4.3 Description of rights of securityholders contained in the
By-laws (see Exhibit 3.2)
*10.1 1997 Stock Option Plan, as amended
*10.2 Form of Indemnity Agreement for directors and officers
</TABLE>
- ---------------
* Incorporated by reference to the same exhibit number from the Registration
Statement on Form F-1 filed on September 26, 1997, as amended (File No.
333-36457).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
RITCHIE BROS. AUCTIONEERS INCORPORATED
(Registrant)
Date November 13, 1998 By /s/ PETER J. BLAKE
----------------------------------------------
Peter J. Blake, Vice President, Finance
and Chief Financial Officer
</TABLE>
16
